Quote from @John Clark:
Quote from @Atul S.:
Hi All,
I am a 29 yo male currently employed in a relatively stable job ($100,000/yr). I'm not focused on saving a lot right now and basically, just put money towards my 401k (10%) and am aggressively paying down/off my student loans and car, so I'm not really contributing a ton toward savings. I'm about to receive a fairly large sum of money ($30,000) which would help immensely towards paying off debts. Here's a breakdown of my debts:
-Car: $20,320
-Student Loans: $47,200
Here are my current savings:
-401k: $23,000
-Savings: $6,511
-Transfer (pending): $30,000
My car is valued at around $23,350 (about a year old) and has only 3500 miles on it, so I could probably sell it. I work remotely, so I don't really drive a lot, and I could likely save up to buy a lower-priced car (if needed). I make my car payments regularly and on time and pay twice a month in an attempt to pay it off quicker! Additionally, I pay off my student loans (at the minimum amount) monthly. That being said, my credit score isn't great and I was pretty irresponsible in my early adult years. I'm trying to build my credit score back (around a 610 right now). With that being said, I'm wondering what I should do?
My thought process is that I can easily pay off my car, sell it and then pay off my student loans and that would essentially leave me with $7,600 left over in student loans (without cashing in my 401k) which I could pay off within a few months. My other gut instinct is telling me to invest this in savings or in a mutual fund / index fund that has an annual return and keep it stowed away. What are your thoughts here? Would love any guidance that anyone can provide!
Personally, I think you need to get financially literate first. You posted a lot of extraneous information, but avoided giving crucial information: What are the interest rates on the loans? What are the loan payments (affects cash flow)? What alternative investments do you have -- and what are the numbers for those investments?
Then there's the problem that your selling the car may be a false savings. What alternative transportation choices do you have, at what cost, and for how long? You may need that car. It doesn't seem like it's an extravagant car, and buying an older, cheaper, car, increases your repair costs. Think twice about that.
Check your need for reserves, your need for cash flow, and compare your returns on alternate investments (which can lose money, only debt is forever) to your debt interest being incurred, and then decide.
You will also find that it will be impossible to get good loan terms with a bad credit score and high debt to income ratio.
Great points. Let me clarify, as I realize this was a real-estate forum and perhaps an inappropriate place to plant this inquiry; however, my goal is homeownership eventually, so it may be appropriate nevertheless. Here are the details:
I only have two liabilities as stated
-Auto Loan: Rem Balance: $20,320 (IR = 7.5% ; Min Payment = $511/mo) - I am currently paying $1,022 per month to pay it off sooner
-Student Loans (consolidated): Rem Balance (after interest): $47,200 (IR = 4.56%; Min Payment = $346/mo) - I am also currently paying $692/mo on this as well
-Total Incidentals (groceries, living expenses insurance, rent etc..) = $1,952
Typical Leftover = $1,014/mo (I invest this into savings, which I don't typically touch)
All of my credit cards are paid off monthly, so I'm not considering them as liabilities here.
The only investment I have is my current 401k which I mentioned I have currently invested $23,320 (rounded down to $23,000). In previous years, I've seen roughly a 5-8% return; however, coming out of last year I did not see any return on my 401k contributions at all. I do not have any other alternative investments (mutual funds, ETFs etc). Happy to hear any thoughts you might have here.
In terms of alternative transportation, I have a friend that's willing to loan me their car because they don't use it and all I'd be responsible for is gas, insurance and maintenance. It's a 2013 Toyota Camry with roughly 32,000 miles on it so I'd imagine the maintenance costs wouldn't be ridiculously high.
I also do realize that it's impossible to get good loan terms with a bad credit score and a high DTI which is why I posed this question here as to whether or not paying off my liabilities is a good move with the large sum versus keeping it stowed away in investments. Happy to hear any feedback you have, and let me know if I missed answering any of the concerns you posed earlier.
